Mergers and acquisitions in Europe have been rare in recent years, and EADS and BAE surprised investors Wednesday with a proposal for a 60/40 share split in EADS' favor. The dual-listed company would have the scope to rival
BoeingBA 0.8111320886651283%Boeing Co.U.S.: NYSEUSD144.17
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19.641689373297Market Cap
97962792201.8524
Dividend Yield
2.5247971145175834% Rev. per Employee
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(BA). On paper, the two are a good fit. BAE would provide EADS with scale in defense and cushion it from the more volatile civil-aviation business. EADS offers BAE diversification, as defense budgets are under pressure and seem likely to remain so for years. Details on potential cost savings are scarce.

The combined market value of the two companies isn't far off the 60/40 split, so BAE shareholders can expect only a small premium for their shares. A BAE acquisition price around 370 pence ($6.01) suggests upside of about 7% to BAE's closing price Friday of 347 pence. Government stakeholders could make or break the deal, but the companies seem to have good answers to their questions.

EADS shareholders aren't happy, even after an announcement that the company will pay a special dividend worth 30 European cents (39.4 U.S. cents) a share to bring its payout policy into line with BAE's. And who can blame them? EADS has been a near-pure-play aerospace outfit with improving margins, and has delivered share-price gains around 30% for the past few years. The combined company would get 40% of its revenue from the slower-growth defense business.

EADS shares closed Friday at 25.30 euros ($33.20), down 15% after Wednesday's announcement, and could fall another 10% if the deal is executed. But they would be worth a look. After such a selloff, they would trade for eight to nine times estimated 2013 net, well below Boeing's double-digit price/earnings ratio.

Xstrata's stock could spike about 9% if shareholders approve Glencore's revised offer. That's the discount between the trading price and the bid, and reflects doubt that the transaction will win shareholder approval. Glencore, which owns 34% of Xstrata, offered 2.8 of its shares in February for each Xstrata share it didn't own, a 15% premium. Xstrata recommended acceptance of the deal, but some shareholders wanted more. Glencore raised its offer to 3.05 of its shares on Sept. 7. Glencore closed Friday at 3.79 pounds, valuing its bid at £11.56 ($18.77). Xstrata's stock ended the week at £10.61.

Xstrata was around £8 several months ago, hurt by softer coal markets at a time when the deal looked dead. It will fall back toward that level if the bid fails. If Glencore succeeds, Xstrata shareholders should take the money and run. The transaction won't be accretive to earnings for a couple of years, and Glencore's prospects aren't encouraging.